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Bank of England Seeks Middle Ground on Interest Rates

Bank of England Seeks Middle Ground on Interest Rates The Bank of England's decision last week to keep interest rates at 5 per cent has drawn a mixed reaction from commentators.

The Bank's Monetary Policy Committee (MPC) made the decision last week as it continues to grapple with rising inflation and a slowdown in general economic activity.


Many surveyors and estate agents were hoping for a cut to boost consumer confidence and give people help with debt management by freeing up their finances.

Royal Institution of Chartered Surveyors (RICS) chief economist Simon Rubinsohn insisted that "the deterioration in both business and consumer sentiment will justify an easing in policy later in the year".


The committee's main purpose is to keep inflation around the Government's 2 per cent target - it is currently at 3.8 per cent and is forecast to increase still further by the end of the year.

However, some analysts predicted that the MPC would increase interest rates to tackle inflation, but it appears that the committee is still trying to steer a middle path.


Engineering Employers’ Federation head of economic policy Lee Hopley observed: "The MPC continues to be pulled in opposing directions by rising inflation and slowing growth.

"However, a cut in interest rates may be needed sooner rather than later to prevent the economy from drifting towards recession."


The need for a cut is generally agreed to be necessary to help people in debt and hard-pressed households cope with the increasing rate of inflation.


Chelsea Building Society customer services director Darren Stevens said: "Normal people, up and down the UK, are struggling daily and the last thing their finances needed was another interest rate rise."

Mr Stevens pointed out that millions of people in Britain are already dipping into their savings to pay the bills and buy groceries - a situation also associated with rising credit card debt.

He warned: "With 13 per cent of Britons starting to save less, this is a strategy that is not sustainable long term and will lead to debt problems."


Propertyfinder.com director Nicholas Leeming felt that the Bank had been too cautious, although he added that a simple interest rate cut would not be good enough.

"The Bank of England must take action to jump start the housing market," he insisted.

Debt Management News posted on 13 August 2008

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